Hi and welcome back! As a trader, you have probably at one time heard about the Turtle Traders, right? But what was it, and what can we learn from it?
Let me take you on a journey into the fascinating world of the Turtle trading strategy! 🐢💰 This legendary trading experiment, conceived by two master traders, Richard Dennis and William Eckhardt, in the 1980s, showcases the power of a well-designed system and the right mindset.
Dennis believed anyone could be trained to trade successfully, while Eckhardt argued that trading skills were innate. To settle the debate, they devised the Turtle trading experiment. They selected a diverse group of 23 individuals, known as the "Turtles," and taught them a trend-following trading system focused on trading commodities and currencies. The core principles of this system were:
Follow the trend: The Turtles used Donchian Channels, tracking 20-day and 55-day price channels, to identify breakouts and breakdowns. When the market price broke above the 20-day high, it was a buy signal. When it broke below the 20-day low, it was a sell signal.
Cut losses short: The Turtles followed a 2% rule, never risking more than 2% of their account on any single trade. They calculated position sizes using the N value, the 20-day average true range (ATR), dividing the 2% risk amount by the N value.
Position sizing and pyramiding: The Turtles adjusted their position sizes based on market volatility and employed pyramiding, adding more contracts at specific increments up to a maximum limit as the market trended in their favor.
Stop Losses: They used a stop-loss order equal to 2N for every trade, exiting the trade to minimize losses if the market moved against their position by twice the N value.
Diversification: The Turtles traded a diversified portfolio of markets, spreading risk and enhancing returns.
Scaling Out: They used a two-tiered exit strategy, exiting a portion of their position when the market retraced by 10-day low/high and the remaining position when the market retraced by 20-day low/high.
With these principles, the Turtles were handed real money to trade. Over the next four years, they collectively made more than $100 million, proving that trading success could be taught. The Turtle trading experiment demonstrated the power of a disciplined, trend-following system combined with the right mindset.
In conclusion, the Turtle trading strategy is an extraordinary tale of how a simple, yet effective, trading system can lead to remarkable results when executed with discipline and consistency. As you venture into the world of trading, remember that the strategy in itself is not as important as the lessons of the Turtles: stay disciplined, follow the trend, and manage your risk. You might just be the next trading success story! 🌊📈
Want to become a Turtle?
💡 Curious about the Turtle trading strategy? Dive into TradingView's Public Indicator library, where you'll find a collection of Turtle-related scripts crafted by the Pine Script™ community. Just open a chart, click "Indicators," and search "Turtle" to access a variety of indicators that'll give you a feel for this legendary system. Happy exploring!
As said, the most important lesson to be learned from the Turtle Traders experiment is that discipline is the most important trait to become a successful trader.
Here are 10 of the top books that focus on discipline, psychology, and mindset in trading, along with their ISBN numbers (in no particular order):
1. "Trading in the Zone: Master the Market with Confidence, Discipline, and a Winning Attitude" by Mark Douglas ISBN-13: 978-0735201446 2. "Disciplined Trader: Developing Winning Attitudes" by Mark Douglas ISBN-13: 978-0132157575 3. "The Daily Trading Coach: 101 Lessons for Becoming Your Own Trading Psychologist" by Brett N. Steenbarger ISBN-13: 978-0470398562 4. "Enhancing Trader Performance: Proven Strategies From the Cutting Edge of Trading Psychology" by Brett N. Steenbarger ISBN-13: 978-0470038666 5. "The Psychology of Trading: Tools and Techniques for Minding the Markets" by Brett N. Steenbarger ISBN-13: 978-0471267614 6. "Trade Mindfully: Achieve Your Optimum Trading Performance with Mindfulness" by Gary Dayton ISBN-13: 978-1118445617 7. "Trading Psychology 2.0: From Best Practices to Best Processes" by Brett N. Steenbarger ISBN-13: 978-1119224387 8. "The New Trading for a Living: Psychology, Discipline, Trading Tools and Systems, Risk Control, Trade Management" by Alexander Elder ISBN-13: 978-1118443927 9. "The Art and Science of Trading: Course Workbook" by Adam Grimes ISBN-13: 978-1539994675 10. "One Good Trade: Inside the Highly Competitive World of Proprietary Trading" by Mike Bellafiore ISBN-13: 978-0470529409
These books offer invaluable insights and strategies for cultivating discipline, managing emotions, and developing a strong psychological foundation for trading success. If you want to gain a better understanding of the mental aspects of trading and to build the discipline required for long-term success in the markets, they are valuable resources.
So, this raises several really good questions that generally go unanswered by those who are obsessed with trade set ups (aka, trade entry rules, signals). Where is the magic in the Turtles approach? Most who read this immediately go to "set-ups conditions." This is NOT where the edge is to be found. The edge of the Turtles came from three areas: 1.) Discipline and patience to follow the rules; 2.) The rules were structured to cut losses (avoid the big adverse hits); and, (3.) The rules were structured to allow profits an opportunity to grown. Process, disciple, patience, cut losses short, let profits run. So, for those of you looking for the "magic" in a set of rules, you are looking in all the wrong places. Peter Brandt, Market Wizard for 48 years.
Nico.Muselle
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@PeterLBrandt, absolutely right. The main point about the Turtle Traders was not the setup in itself. It could have been any other strategy. The goal was to prove that they could be successful if they adhered strictly and unconditionally to the rules. In other words, be a disciplined trader, following process over outcome.
scheplick
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@Nico.Muselle, @PeterLBrandt This what we should also really strive to make more clear to anyone looking to get into markets - both a process, but also what I find especially interesting about the turtles, is how they demonstrated almost anyone can do it with the right mindset willing to follow such rules. As @TASMarketProfile said in a TradingView interview: "The market does not discriminate"
Wavetrader
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@PeterLBrandt Spot on.. most average Joes or joelenes or joetrans can't not stand losing 3 days out of 5 to "get into the long run"
TradingView
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Hey we know you! This was featured in our Educational Editors' Picks. Thanks for sharing and writing this. The turtle traders remain a fascinating experiment in trading. A lesson for all.